6 steps for soaring valuations
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1. Identify your purpose
Your approach to the valuation will vary depending on what you hope to achieve.
Steve Waters from Right Property Group says, in some cases investors may be looking to release equity to buy another investment. In these circumstances, banks will usually opt to revalue the property to establish its current worth.
Investors hiring a valuer in the hope of borrowing against the report in future should take care to choose an appropriate company, suggests CENTURY 21 Australasia chairman Charles Tarbey.
“Not all banks accept all valuations. You want to make sure that if you’re planning to use a certain bank, that valuer is on the bank's panel,” he says.
Alternatively, a vendor may seek a valuation to present to a future buyer, according to Jacque Parker from House Search Australia.
“Being able to show the purchasers an independent valuation gives them more solidity and confidence that they're not overpaying,” she says.
In most situations, owners will want their valuation to be as high as possible, Ms Parker says. However, there are circumstances where getting a weaker price may actually be more desirable.
“Obviously when it's a family sale or a situation where they're trying to minimise their capital gains tax, then they would be going for a lower valuation,” Ms Parker says.
2. Presentation is key
Mr Tarbey believes owners should approach a property valuation in the same way as a sales or rental inspection.
“The way you present your property will impact on the valuer's view of it. At the end of the day, there is an advantage in making your property look as respectable as possible if you want to get a professional price,” he says.
Ms Parker says simple steps like thoroughly cleaning every room, de-cluttering surfaces and minimising bulky furniture can make the property seem more appealing.
If a property is occupied, Tony Coughran from VFM Buyers Agents recommends enlisting the help of your property manager.
“Tenanted properties need the right rental managers in place to give appropriate notice and encourage tenants to present the investment in your favour,” he says.
In addition, he encourages owners to take advantage of the property’s key features and downplay any negative aspects. As an example, owners with waterfront properties should schedule appointments at high tide when the view is most enjoyable. Likewise, properties with poor insulation might be inhospitably cold on early winter mornings.
First impressions are lasting, Mr Waters reminds investors.
“Make sure the house and yard maintenance is perfect because a valuer starts valuing from the moment they pull up outside on the kerb,” he warns.
“You don't get a second chance to make a first impression.”
In some cases, the entire valuation may be conducted “kerbside”, meaning the valuer drives up and looks solely at the outside of the property, Mr Water says.
Make sure the house and yard maintenance is perfect because a valuer starts valuing from the moment they pull up outside on the kerb.
3. Stay up to date with repairs and renovations
Even minor damage can detract from the valuer’s overall impression of the property.
“Make sure any little, obvious repairs are attended to, such as door knobs, light switches and light fittings,” Ms Parker says.
Owners would be wise to go through the house with their toolbox just before the valuer arrives. However, Mr Waters advises this may not be enough. He believes it is vital for owners to have an ongoing commitment to maintenance. Ignoring issues may lead the tenants to complain to the valuer, he says.
“I think from a risk point of view, valuers think that if the repairs and maintenance aren't happening on a regular basis then the risk associated with that property increases. “Therefore, subconsciously they may value the property lower or class it as a higher risk,” he says.
On a grander scale, investors may consider doing some light renovations to give their property a makeover. Mr Coughran is a believer in the power of “CTP” — carpet, tiles and paint — to transform a house.
However, he reminds investors about the dangers of over capitalising, saying cost does not always equal value. In addition, unfinished renovations may be more damaging than leaving the property as it is.
“Ensure projects are completed prior to your inspection to avoid embarrassing yourself with a deflated value, because the date of inspection is the effective date of valuation,” he says.
“Be aware that any issues or unfinished renovations that may be considered a risk to the bank will be reported in most cases.”
If you have completed renovations or improvements since your last valuation, Ms Parker says it is essential to document these changes.
“Ensure you have an improvement cost added to the actual base value of the home when you bought it,” she says.
A kitchen refurbishment, for example, may not be immediately obvious to someone unfamiliar with how the house looked previously.
“Valuers do tend to look at all the fittings and fixtures, but they have no way of knowing if they are the original ones or if they've been updated,” Ms Parker says.
“You need to tell them that. So, for example, if you've put $14,000 worth of improvements in the place they can add that to the valuation.”
The way you present your property will impact on the valuer's view of it.
4. Gather evidence
The valuer’s job is to work out where your property stands in relation to others. Helping the valuer understand local conditions can put your property ahead of the pack.
Mr Tarbey recommends consolidating information on local sales data.
“I would look at current properties for sale in the immediate vicinity and get the details of these, which you can download from numerous websites,” he says.
He strongly encourages investors to use all available resources to back up their desired price point.
“The broader community has the same accessibility to information as valuers these days,” he says.
“Whenever I get a valuation done, I always do my own homework first, which allows me to then present my findings to the valuer to justify my price.”
In addition to relying on online data, Ms Parker suggests doing some legwork. Websites do not always have the most up to date sales data, which can be crucial in a rising market.
“This means you need to visit homes that are for sale and then follow them up afterwards when they do sell. My tip is to get friendly with the local agents so you have access to the most recent sales because not all of them are going to be displayed online,” she says.
One you have the data, Mr Waters suggests digging deeper into the story behind each sale. Context can be crucial, he says, particularly for low-selling properties that seem similar to your asset.
“There might be a low sale on that street or on that complex which is comparable to yours. We try to find out why so we can tell the valuer. It might have had termite damage or it could be an inter-family sale,” he says.
Similarly, if you bought your own property at below-market value, Mr Waters believes you should explain this to the valuer.
Mr Waters has another trick up his sleeve: market appraisals from sales agents. This can be particularly useful where the local market is moving quickly.
“We find that getting local sales agents’ or real estate agents’ market appraisals to support it is very handy,” he says.
While the valuer will still do their work as per the normal process, Mr Waters believes any additional information can help sway their opinion in your favour.
“A valuer doesn't have a lot of time and they do multiple valuations a day. Sometimes they aren't from that area, so they may not have the ground knowledge,” he says.
Similarly, Mr Coughran says while valuations are always based on sales data, compelling information may back up a positive assessment.
“Valuers rely on registered sales evidence, but additional information will be noted on file and give confidence to provide a more favourable valuation figure,” he says.
5. Act professionally
While giving the valuer background information is important, it is equally important to let them do their job. Mr Coughran warns owners against “valuer stalking”.
“This means following the valuer through the home, pointing out every basic feature of the property,” he says.
Investors should be cooperative and honest with the valuer without getting them off side, he advises. Similarly, owners should avoid pressuring valuers for an immediate response.
“Valuers are professionals who need to carefully analyse comparable sales evidence and apply a summation method of valuation, meaning land value plus 'added value' of the improvements. For this reason, some valuers are not fond of being asked for immediate figures on the spot,” he says.
Mr Waters also warns against “shadowing” valuers through the property.
“You have to come across as very professional,” he says.
Ms Parker recommends preparing your information in a neat pack and meeting the valuer at the front door.
“When the valuer comes through, I hand those to him on a sheet, I say I've done some research and these are the ones that I feel are closest to my property,” she says.
My tip would be to read the valuation report thoroughly and check for any discrepancies.
6. Challenge inconsistencies
Even the most experienced valuer may make a mistake. Carefully checking the report is vital, especially if the price is not what you expected, Ms Parker says.
“My last tip would be to read the valuation report thoroughly and check for any discrepancies,” she says.
In some cases, the valuer might get the property details wrong. Ms Parker read one report where the valuer mistakenly identified the property as sitting on a concrete slab. Mr Waters has seen one valuer describe a property as three bedrooms when it actually had four.
“We get mistakes quite a lot. Sometimes the data they use could be wrong or it could be a genuine mistake,” he says.
This type of error is generally easy to set right. More difficult is when the details are correct, but the valuation price still seems unjustified.
“In some cases, the discrepancies are not on the actual property but on the sales they have used as a comparison. You can contest that valuation if you feel it's not reflective or accurate and comparable with your property,” Ms Parker says.
It may be that your house in a quiet cul-de-sac is being compared to a property beside a rail line, she says as an example.
The value of contesting the outcome will depend on the purpose of the valuation and who commissioned it.
“If you're getting an independent valuation done, it's a lot easier. You're paying for the valuation so you will get full access to the report. Then you could contest it with the valuer directly,” Ms Parker says.
Mr Tarbey suggests asking your valuer for a written explanation of the pricing. Alternatively, he advises seeking out a second opinion from a different firm.
Where the valuer is engaged by the bank, the result may be more difficult to change. When a disappointing result comes back, Mr Waters recompiles sales data before challenging the result with the broker.
“You would go through the broker or the lender, never directly to the valuer. They would ask you to provide some more evidence or more information around the comparables,” he says.
However, he warns some lenders are more open to challenge than others.
“It depends on the lender. Sometimes their valuation is their valuation,” he says.